Superior Court of Massachusetts, Suffolk, Business Litigation Session
Anthony Fortunato, Individually and on Behalf of All Others Similarly Situated
Akebia Therapeutics, Inc. et al.  No. 135997
February 22, 2017
MEMORANDUM AND ORDER ALLOWING DEFENDANTS' MOTION
Kenneth W. Salinger, Justice of the Superior Court.
Fortunato asserts claims on behalf of himself and a putative
class of investors in Akebia Therapeutics, Inc. The amended
complaint alleges that Akebia's final registration
statement and prospectus for its initial public offering were
misleading because they did not disclose interim results from
an ongoing clinical drug trial. Fortunato claims that as a
result Akebia, senior executives and directors who signed the
offering materials, and the investment banks that acted as
underwriters for the IPO all violated the federal Securities
Act of 1933.
move to dismiss this action on the grounds that: (1) the
federal courts have exclusive jurisdiction over Securities
Act class actions; (2) Fortunato's claims sound in fraud
and he has failed to state the factual basis for his claims
with sufficient particularity; and (3) if particularity is
not required, Fortunato has failed to allege facts that
plausibly suggest he and the putative class are entitled to
Court concludes that the first two arguments are without
merit. State courts have concurrent jurisdiction to hear
Securities Act class actions; the Securities Litigation
Uniform Standards Act of 1998 did not take that power away.
And Fortunato need not meet the heightened pleading standard
that applies to fraud claims because he alleges only
negligent misrepresentations and expressly disclaims any
claim of intentional or reckless fraud.
Court will ALLOW the motion to dismiss because the facts
alleged by Fortunato do not plausibly suggest that he is
entitled to any relief under the Securities Act. Fortunato
claims that the offering materials issued by Akebia for its
March 2014 IPO were misleading because they failed to
disclose preliminary information from Akebia's ongoing
Phase 2b clinical trial of its first potential pharmaceutical
product suggesting that patients receiving the test drug were
more likely to experience serious adverse events than
patients who received a placebo. But the complaint and the
materials it cites make clear that this Phase 2b study was a
double-blind, placebo-controlled, randomized trial. They also
indicate that this trial was not completed, and thus the
study results were not unblinded to reveal which patients
received the trial drug and which received a placebo, until
six months or more after the IPO. Fortunato alleges no facts
plausibly suggesting that Defendants knew or could have known
any material information about the double-blind Phase 2b
trial before Akebia's IPO or, indeed, at any time before
Akebia publicly released the final trial results in October
Subject Matter Jurisdiction
asserts claims on behalf of himself and a proposed class of
more than fifty investors under sections 11, 12(a)(2), and 15
of the federal Securities Act of 1933; these provisions are
codified as 15 U.S.C. § § 77k, 77l, and 77o,
respectively. " The Securities Act 'was designed to
provide investors with full disclosure of material
information concerning public offerings.'" In re
Ariad Pharms., Inc. Sec. Litig., 842 F.3d 744, 755 (1st
Cir. 2016), quoting Ernst & Ernst v. Hochfelder,
425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). "
Section 11 advances this goal by creating virtually strict
liability for any 'untrue statement' or misleading
omission of material fact in a registration statement."
Id., quoting 15 U.S.C. § 77k(a). "
[S]ection 12(a)(2) imposes similar liability on sellers who
make such statements in a prospectus or oral
communication." Plumbers' Union Local No. 12
Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d
762, 766 (1st Cir. 2011), citing 15 U.S.C. § 77
l (a)(2). " Section 15 creates liability for
any individual or entity that 'controls any person
liable' under sections 11 or 12." Id.,
quoting 15 U.S.C. § 77o. Thus, " a liability
finding under either § § 11 or 12 is a prerequisite
for success under § 15." Silverstrand
Investments v. AMAG Pharm., Inc., 707 F.3d 95, 107 (1st
argue that the Securities Act gives federal courts exclusive
jurisdiction and deprives the Massachusetts courts of subject
matter jurisdiction over Fortunato's class claims.
(Defendants have actually moved to dismiss all of
Fortunato's claims for lack of subject matter
jurisdiction. But their jurisdictional argument only pertains
to the claims he seeks to assert on behalf of the putative
claims, not to his personal claims under the federal
makes two responses. First, he points out that Akebia made
the same jurisdictional argument after attempting to remove
this action to federal district court; notes that Judge Saris
rejected the jurisdictional argument and remanded the case to
the Superior Court; and argues that Judge Saris's ruling
is binding and may not be revisited. Second, Fortunato
asserts in the alternative that Judge Saris's ruling was
correct and that state and federal courts have concurrent
jurisdiction over class actions brought under the federal
Court concludes that it must make its own determination as to
its subject matter jurisdiction, and not merely defer to
Judge Saris's prior ruling. It would also be
inappropriate to skip over the jurisdictional question and
decide whether Fortunato has stated a viable claim without
first determining whether the Court has the power to resolve
that question. Turning to that question, the Court concludes
that state courts retain concurrent jurisdiction to hear and
decide Securities Act class actions.
Law of the Case
tried to remove this action to federal court. They ran afoul
of a Securities Act provision that bars removal of any case
under the federal statute that is " brought in any State
court of competent jurisdiction." See 15 U.S.C. §
77v(a). Fortunato sought a remand under this provision.
Defendants opposed the remand request on the ground that the
Superior Court is not a " court of competent
jurisdiction" because Congress has given federal courts
exclusive jurisdiction over class actions under the federal
Securities Act. Judge Saris disagreed. She held that the
state and federal courts have concurrent jurisdiction over
Fortunato's class claims. She therefore ordered that the
case be remanded to the Suffolk County Superior Court. See
Fortunato v. Akebia Therapeutics, Inc., 183
F.Supp.3d 326 (D.Mass. 2016). By law, Defendants cannot
appeal or otherwise seek review of this remand order. See
Kircher v. Putnam Funds Trust, 547 U.S. 633, 640-44,
126 S.Ct. 2145, 165 L.Ed.2d 92 (2006).
insists that, under the " law of the case"
doctrine, the prior jurisdictional ruling by Judge Saris
" controls here" and therefore "
precludes" and " prevents" any further
consideration of the issue. That is not correct.
decision to remand this case has no preclusive effect, with
respect to Judge Saris's jurisdictional ruling or
otherwise, because Defendants had no right to seek any
appellate review. Kircher, supra, at 646-47; see
also Alicea v. Commonwealth, 466 Mass. 228, 234, 993
N.E.2d 725 (2013) (whether federal court judgment or order
has preclusive effect in state court proceeding " is
governed by Federal common law, " not by state law).
" While the state court cannot review the decision to
remand in an appellate way, it is perfectly free to reject
the remanding courts reasoning[.]" Kircher, at
647. Furthermore, a federal judge has no more power to "
confer jurisdiction" on Massachusetts courts than does
the secretary of a state agency, and her " opinion with
respect to the existence of jurisdiction" is similarly
" neither controlling nor entitled to special
weight." Cf. Cummings v. Secretary of Exec. Office
of Envtl. Affairs, 402 Mass. 611, 613-14, 524 N.E.2d 836
(1988) (state agency cannot confer jurisdiction on courts by
law of the case doctrine does not prevent a second judge from
revisiting " an earlier ruling by another judge."
Martin v. Roy, 54 Mass.App.Ct. 642, 644, 767 N.E.2d
603 (2002); accord, Gleason v. Hardware Mut. Cas.
Co., 331 Mass. 703, 710, 122 N.E.2d 381 (1954). Since
final judgment has not entered, the Court has " broad
discretion" to revisit any prior ruling in this case.
Genesis Technical & Fin., Inc. v. Cast Navigation,
LLC, 74 Mass.App.Ct. 203, 206, 905 N.E.2d 569 (2009);
accord, Herbert A. Sullivan, Inc. v. Utica Mut. Ins.
Co., 439 Mass. 387, 401, 788 N.E.2d 522 (2003) ("
it is within the inherent authority of a trial judge to
'reconsider decisions made on the road to final
judgment'") (quoting Franchi v. Stella, 42
Mass.App.Ct. 251, 258, 676 N.E.2d 56 (1997)).
are several reasons why it makes sense for the Court to make
its own determination as to whether it has subject matter
jurisdiction, rather than merely adopt Judge Saris's
Judge Saris recognized, there is a sharp disagreement among
federal district judges as to whether federal courts have
exclusive jurisdiction over federal Securities Act class
actions or, alternatively, whether state courts share
concurrent jurisdiction over such claims. Fortunato,
183 F.Supp.3d at 328; accord, e.g., Rosenberg v.
Cliff's Natural Resources, Inc. No. 1:14CV1531, 2015
WL 1534033, *2-*3 (N.D. Ohio 2015); Toth v. Envivo,
Inc. No. C 12-5636 CW, 2013 WL 5596965, *1 n.1 (N.D.Cal.
2013). It appears that no federal appellate court has
addressed the issue. The Supreme Court is considering
whether to step in and resolve this split among federal
district judges. It has invited the Acting Solicitor
General to express the views of the United States as to
whether certiorari should be granted. But at present the
issue remains hotly contested and unsettled.
since " the question of subject matter jurisdiction may
be raised by the parties at any time, " is therefore
" certain to reappear" on appeal if Fortunato were
to prevail on the merits, and has been fully briefed and
argued by the parties, it makes little sense to allow the
case to proceed without considering the merits of
Defendants' assertion that Massachusetts courts lack
subject matter jurisdiction over Fortunato's claims. See
Maxwell v. AIG Domestic Claims, Inc., 460 Mass. 91,
99, 950 N.E.2d 40 (2011) (deciding interlocutory challenge to
subject matter jurisdiction, even though Defendant had no
right to seek interlocutory review on that ground).
Subject Matter Jurisdiction as Prerequisite
Court must decide Defendants' jurisdictional challenge
under Mass.R.Civ.P. 12(b)(1) before it can address their
arguments for dismissal under Rule 12(b)(6) " [b]ecause
the question of subject matter jurisdiction goes to the power
of the court to hear and decide the matter." Ginther
v. Commissioner of Ins., 427 Mass. 319, 320 n.4 &
322 n.6, 693 N.E.2d 153 (1998). " Courts . . . have both
the power and the obligation to resolve questions of subject
matter jurisdiction whenever they become apparent[.]"
HSBC Bank U.S.A., N.A. v. Matt, 464 Mass. 193, 199,
981 N.E.2d 710 (2013), quoting Nature Church v. Assessors
of Belchertown, 384 Mass. 811, 812, 429 N.E.2d 329
(1981). " The question at the heart of subject matter
jurisdiction is, 'Has the Legislature [or the
Constitution] empowered the [court] to hear cases of a
certain genre?'" Ten Persons of the Commonwealth
v. Fellsway Development, LLC, 460 Mass. 366, 375, 951
N.E.2d 648 (2011), quoting Doe, Sex Offender Registry Bd.
No. 3974 v. Sex Offender Registry Bd., 457 Mass. 53,
56-57, 927 N.E.2d 455 (2010), and Wachovia Bank, Natl.
Ass'n v. Schmidt, 546 U.S. 303, 316, 126 S.Ct. 941,
163 L.Ed.2d 797 (2006). " Without jurisdiction the court
cannot proceed at all in any cause. Jurisdiction is power to
declare the law, and when it ceases to exist, the only
function remaining to the court is that of announcing the
fact and dismissing the cause." Steel Co. v.
Citizens for a Better Environment, 523 U.S. 83, 94, 118
S.Ct. 1003, 140 L.Ed.2d 210 (1998), quoting Ex parte
McCardle, 74 U.S. (7 Wall.) 506, 514, 19 L.Ed. 264
Massachusetts courts sometimes skip over difficult
jurisdictional issues, and instead resolve a case on the
merits, where doing so will make " no difference in the
result." See Boston Gas Co. v. Department of Pub.
Utils., 368 Mass. 780, 805, 336 N.E.2d 713 (1975);
accord, Mostyn v. Department of Envtl. Prot., 83
Mass.App.Ct. 788, 792, 989 N.E.2d 926 & n.12 (2013). The
plaintiffs in Boston Gas and Mostyn were
seeking to challenge decisions by administrative agencies.
The defendant agencies argued that the plaintiffs did not
have standing. Whether a plaintiff has standing raises an
" issue of subject matter jurisdiction." Indeck
Maine Energy, LLC v. Commissioner of Energy Resources,
454 Mass. 511, 516, 911 N.E.2d 149 (2009). In a case
involving judicial review of an administrative decision,
however, it often does not matter whether the claim fails
because no plaintiff has standing or because the plaintiffs
have not asserted a meritorious claim. Either way, the result
is typically the same: a judgment will enter that leaves the
agency decision intact, and strict statutory time limits will
bar anyone else from seeking judicial review thereafter.
Compare Indeck, supra (affirming judgment that
dismissed action for lack of standing) with Mostyn,
supra (affirming judgment that affirmed agency's
case, however, it would make a big difference whether the
Court dismisses the action for lack of subject matter
jurisdiction or does so because Fortunato has failed to state
any claim upon which relief can be granted. A dismissal for
lack of subject matter jurisdiction would be without
prejudice, leaving Fortunato free to refile this class action
in federal court. See Abate v. Fremont Inv. &
Loan, 470 Mass. 821, 836, 26 N.E.3d 695 (2015) ("
Dismissals for lack of subject matter jurisdiction are
ordinarily without prejudice because dismissal for lack of
jurisdiction is typically not an adjudication on the
merits"). But a dismissal for failure to state a claim
would be with prejudice, and bar any further claim by
Fortunato personally. See Mestek, Inc. v. United Pacific
Ins. Co., 40 Mass.App.Ct. 729, 731, 667 N.E.2d 292, rev.
denied, 423 Mass. 1108, 671 N.E.2d 952 (1996) (" Under
Massachusetts law, as elsewhere, a dismissal for failure to
state a claim, under Mass.R.Civ.P. 12(b)(6), operates as a
dismissal on the merits, see Mass.R.Civ.P. 41(b)(3), with res
judicata effect") (quoting Isaac v. Schwartz,
706 F.2d 15, 17 (1st Cir. 1983)). Since no class has been
certified, such a dismissal would not have preclusive effect
with respect to the putative class. See Massachusetts
General Hosp. v. Rate Setting Comm'n, 371 Mass. 705,
713, 359 N.E.2d 41 (1977).
would be inappropriate to decide whether this action must be
dismissed with prejudice under Rule 12(b)(6) for failure to
state a claim without first deciding whether the Court has
subject matter jurisdiction to adjudicate the merits. If the
Court lacked subject matter jurisdiction, any judgment
dismissing Fortunato's claims with prejudice would be
void and have no effect. See Everett v. 357 Corp.,
453 Mass. 585, 612, 904 N.E.2d 733 (2009) (vacating judgment
entered after jury trial and ordering dismissal because
Superior Court lacked subject matter jurisdiction).
State Court Jurisdiction
let's turn to the jurisdictional question. According to
Defendants, Congress established concurrent state and federal
court jurisdiction over suits brought to enforce the
Securities Act of 1933, but then eliminated state court
jurisdiction over larger Securities Act class actions when it
amended that statute in 1998. Defendants say that Congress
originally established concurrent jurisdiction by providing
that " [t]he district courts of the United States . . .
shall have jurisdiction . . . concurrent with State and
Territorial courts, of all suits in equity and actions at law
brought to enforce any liability or duty created by this
subchapter." See 48 Stat. 86, § 22(a) (now codified
at 15 U.S.C. § 77v(a)); see also Wilko v. Swan,
346 U.S. 427, 433 n.16, 74 S.Ct. 182, 98 L.Ed. 168 (1953).
Congress amended this provision in 1998. It now says that
federal district courts " shall have jurisdiction . . .
concurrent with State and Territorial courts, except as
provided in section 77p of this title with respect to covered
class actions, of all suits . . . brought to enforce any
liability or duty created by this subchapter" (emphasis
added). 15 U.S.C. § 77v(a), as amended by the Securities
Litigation Uniform Standards Act of 1998, Pub. L. No.
105-353, § 101(a)(3) 112 Stat. 3227 (1998) ("
SLUSA"). Defendants say this amendment "
extinguished" state court jurisdiction over Securities
Act class actions seeking damages on behalf of more than
Court disagrees. Congress did not have to and did not in fact
establish concurrent state and federal jurisdiction over
Securities Act claims, because state courts have the inherent
power under our federal system to decide such claims. And
nothing in the 1998 statutory amendment deprives state
courts, either expressly or by necessary implication, of
concurrent jurisdiction to hear and decide class actions of
any size brought under the Securities Act.
Concurrent Jurisdiction is Presumed
courts do not need permission from Congress to hear and
decide questions of federal law, including causes of action
created by federal statute. As the Supreme Judicial Court
explained long ago, " [t]he jurisdiction assumed by the
state courts, in matters arising under the United States
laws, has not been limited to the case where jurisdiction has
been expressly conferred upon them by the statute
itself." Ward v. Jenkins, 51 Mass. (10 Metcalf)
583, 588, 10 Metc. 583 (1846). So long as no statutory or
constitutional provision gives federal courts exclusive
jurisdiction, " the fact that the cause of action arose
under certain rights acquired by a statute of the United
States [is] no sufficient objection to the jurisdiction of a
state court." Id. The United States Supreme
Court has long agreed. See Claflin v. Houseman, 93
U.S. (3 Otto) 130, 136-37, 23 L.Ed. 833 (1876); Houston
v. Moore, 18 U.S. (5 Wheat.) 1, 32, 5 L.Ed. 19 (1820).
It has " consistently held that state courts have
inherent authority, and are thus presumptively competent, to
adjudicate claims arising under the laws of the United
States." Tafflin v. Levitt, 493 U.S. 455, 458,
110 S.Ct. 792, 107 L.Ed.2d 887 (1990) (state courts ...